The AIR U.S. Hurricane

Transcription

1 The AIR U.S. Hurricane Model for Offshore Assets The Gulf of Mexico contains thousands of platforms and rigs of various designs that produce 1.4 million barrels of oil and 8 billion cubic feet of gas per day nearly 30% and 20% of the production of the entire U.S., respectively. As the Gulf of Mexico s share of domestic oil and gas production grows more than doubling in the last 15 years an ever larger portion of the nation s energy supply is at risk from hurricanes.

2 More than 130 hurricanes have formed in or entered into the Gulf of Mexico since In 2004 and 2005 alone, Hurricanes Ivan, Katrina and Rita inflicted unprecedented damage to offshore assets. Together, Katrina and Rita collapsed some 120 major platforms and rigs. Many other minor platforms, such as free-standing caissons and well protectors, were destroyed and more than 2,000 additional platforms suffered lesser degrees of damage. The combined insured losses to offshore assets caused by the hurricanes of 2004 and 2005 are estimated by the industry to be in the range of $15 billion. This represents only a fraction of the total ground-up losses, with the rest being absorbed by platform operators. Modeling Hurricane Risk to Offshore Assets Where and what kinds of platforms and rigs are in the Gulf and how valuable are they? What is the nature of the hazard they face? How vulnerable are the platforms and rigs exposed to that hazard? How big are the potential losses? Any assessment of hurricane risk to offshore assets must address four primary issues: the exposure at risk, the hazard, the vulnerability of the exposed inventory, and appropriately modeling the complex policy conditions that prevail in this market. Sound Modeling Begins with a Comprehensive Exposure Database Of the approximately 6,000 platforms and rigs currently in operation in the Gulf, about 4,200 are located in federal waters, while the rest are in the state waters of Louisiana and Texas. Using public and private data from the Mineral Management Service (MMS), the Louisiana Department of Natural Resources, private vendors, and platform operators, AIR s exposure database contains detailed characteristics necessary to make realistic assessments of their vulnerability and loss potential. Replacement costs an essential input for accurate loss estimates are included for each single platform and rig. The replacement cost of the entire fleet exceeds $75B, with unit replacement costs varying from a few million dollars for a typical caisson in shallow water to more than $1B for the largest semi-submersible in operation. In addition to the name, location, installation date, type and replacement cost of each platform, AIR s exposure database also contains critical information for assessing the vulnerability of each structure, such as the actual deck height, the number of legs and framing system, the number of wells in operation, the number of decks, and oil and gas production rates. Location of platforms and rigs currently operating in federal and state waters

3 Model at a Glance Modeled Perils Hurricane winds and waves Model Domain State and federal waters of the Gulf of Mexico Software Systems CATRADER, CLASIC/2 TM Supported Geographic CATRADER: Protraction Resolution CLASIC/2: Protraction and Block, Latitude and Longitude Vulnerability Module Supports 14 types of platforms and rigs: caissons, well protectors, jackets, submersibles, compliant towers, jackups, tension leg platforms, mini tension leg platforms, SPAR buoys, semisubmersibles, drill ships, drill rigs (mounted on fixed and floating platforms), subsea production units, and unknown Leveraging the Proven Strengths of AIR s U.S. Hurricane Model The AIR U.S. Hurricane Model for Offshore Assets leverages the proven strengths of AIR s U.S. Hurricane Model, which has been the industry standard for assessing hurricane risk since it was introduced in The model s catalog of simulated storms contains tens of thousands of events capable of causing damage and loss scenarios representing the entire spectrum of potential storm experience in the Gulf of Mexico. The model s simulated windfield, which has been extensively validated against observations, detailed claims data and other sources, calculates the maximum 1-minute and 3s-gust wind speeds at various altitudes above mean sea level to account for variable platform deck heights. Modeling Wave Heights A key component is the model s unique wave height module. Maximum wave crest height, the best predictor of physical damage to platforms and rigs, is calculated using an empirical parametric model that includes the effects of storm surge. The model considers the storm s forward velocity, maximum wind speed and water depth, all of which play in important role in determining both the magnitude as well as the spatial distribution of waves. The model has been validated against observations and historical wave height data from NOAA and other sources. Assessing Vulnerability to Wind and Waves For fixed platforms, deck and topside equipment typically bear the brunt of hurricane force winds, while waves generate most of the damage to the structure and foundation. But for intense storms, wave crests can be high enough to hit the deck, causing extremely high impact loads that most platforms are not designed to sustain. Floating platforms that are tied to the seafloor by mooring systems or tethers are designed to ride the waves. These typically suffer minor damage until the combined forces of the elements break the restraining lines or sever the tethers. When that happens, the platform either floats away from the original site, colliding with whatever is in its path, or capsizes. High Low Modeled wind speeds (left), wave crest heights (middle) and surge heights (right) for Hurricane Katrina

4 The AIR model features separate damage functions for wind and wave for each of 14 supported platform types. The wave damage functions account for the age of the structure and important characteristics such as deck height, number of legs, and bracing system. The wind damage functions consider both deck height and the number of decks installed on the platform topside. Coverages and Policy Terms Specific to the Offshore Market The AIR U.S. Hurricane Model for Offshore Assets accounts for the most important insurance coverages in the offshore energy market, including: Physical damage (PD) Direct and contingent business interruption (BI + CBI) Operator s extra expense (OEE) Removal of debris (ROD) The AIR model explicitly handles policy conditions specific to this unique market, including Combined Single Limits and Assured Interest. Combined Single Limits are applied at the policy level, with limits and attachment points applied to an ordered set of coverages. Sublimits can be applied to all or some locations in a policy, by coverage. Both Combined Single Limits and Sublimits can be applied on a 100% participation basis or Assured Interest basis. Validation of Modeled Losses Modeled loss estimates for all coverages have been extensively validated against data representing nearly 50% of claims filed for Hurricanes Ivan, Katrina and Rita. The modeled oil and gas loss of production for these storms were validated against MMS official shutin data. The losses were computed using the exposure and production rates at the time of the storms, since oil and gas production rates per platform fluctuate and, on average, more than 100 new platforms are built and more than 100 old platforms are decommissioned every year. In addition to physical damage, business interruption, debris removal, and well restoration or redrilling are also significant drivers of insured loss. In fact, business Katrina/Rita Katrina/Rita interruption losses from large and intense storms can be a multiple of the losses resulting from physical damage. A realistic estimate of such losses requires an in-depth understanding of the activities needed for repairing damaged platforms, clearing debris from the MMS MMS site and restoring or re-drilling damaged wells and AIR AIR 0 0 how these activities are impacted by water depth. The # Days # Days model s BI damage functions for producing platforms Comparison of AIR-modeled and actual shut-in data for Katrina and Rita account for pre-storm shutdown time, the level of physical damage, the size of the operating company, and the percentage of platforms impacted by the storm to estimate the level of demand surge. CLASIC/2 s user interface supports common offshore policy terms % of Daily Oil Production % Daily Gas Production Using the Model within CLASIC/2 and CATRADER CLASIC/2 has been enhanced in several ways to support the U.S. Hurricane Model for Offshore Assets. New Construction and Occupancy Types specific to offshore risks are supported, as are policy conditions such as Limits by Coverage, Combined Single Limit (CSL) with 100% Participation, and Combined Single Limit (CSL) with Assured Interest. The user interface, importing, exporting, and reporting utilities have been updated to easily handle offshore policy terms and exposure data. (Cont.)

5 (Continued from previous page) One of the unique features of the model s implementation in CLASIC/2 is its data validation and enhancement capabilities. Upon import, platform and rig information is validated. Warnings are generated when there are inconsistencies between input data and the data in the AIR industry exposure database. Invalid combinations of data are identified. For example, if the input platform type is not compatible with a certain location due to the water depth at that location, an error message is generated with suggestions on how to fix the problem. Both CLASIC/2 and CATRADER use the AIR U.S. Hurricane Model s catalog of simulated events, which enables users to easily assess correlations between onshore and offshore properties in the U.S., the Gulf of Mexico and the Caribbean. Because a single, unified event catalog is used, onshore and offshore losses can be easily combined. Reinsurance programs can be analyzed for all or just selected coverages. Losses can be accumulated for the Gulf of Mexico or for specific regions within the Gulf using the Applies to Areas or Zone features. Reinsurance programs can be analyzed in CATRADER for all or selected coverages In many cases, detailed platform characteristics are missing from policy data. In those cases, CLASIC/2 can augment the data using AIR s industry exposure database, for a more accurate analysis of the risk. AIR s exposure database contains up-to-date information on the detailed characteristics of nearly 6,000 platforms and rigs in both state and federal waters. CATRADER users can enter their exposures either on a sums-insured or number-of-risks basis, or import a CLF containing both onshore and offshore losses from CLASIC/2. (AIR strongly encourages the use of CLF s rather than sums insured or number of risks when analyzing offshore risk in CATRADER. Detailed modeling is recommended due to the variability in types of platforms, platform-specific construction details, coverages and policy terms characteristic of this line of business.) MODEL Highlights Features separate modules for wind and wave hazard calculations, and separate damage functions to estimate the physical damage from wind and wave forces. Losses validated against detailed claims data for Ivan, Katrina, and Rita representing close to 50% of total claims paid. Supports complex policy terms including Combined Single Limits, Sublimits, and Assured Interest. CLASIC/2 implementation supports extensive data validation and data augmentation based on AIR s detailed industry exposure database. Uses the AIR U.S. Hurricane Model s catalog of simulated events, which enables users to easily create a combined distribution of losses for onshore and offshore properties in the U.S., the Gulf of Mexico and the Caribbean.

6 About AIR Worldwide Corporation AIR Worldwide Corporation (AIR) is the scientific leader and most respected provider of risk modeling software and consulting services. AIR founded the catastrophe modeling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 50 countries. More than 400 insurance, reinsurance, financial, corporate and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securities, site-specific wind and seismic engineering analyses, and property replacement cost valuation. AIR is a member of the ISO family of companies and is headquartered in Boston with additional offices in North America, Europe and Asia. For more information please visit AIR WORLDWIDE CATRADER is a U.S. registered trademark of AIR Worldwide Corporation. CLASIC/2 is a trademark of AIR Worldwide Corporation. AIR WORLDWIDE 131 Dartmouth Street, Boston, MA T: F: